Working Demographics
May 2016

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Few potential solutions to the challenges that demographic developments present exist.

A common assumption is that demographic forces move slowly and have a high degree of predictability; however, once demographic developments hit a threshold, the results of demographic forces appear seemingly out of nowhere. The numerous effects of these results on employment, consumption, and social systems create an overall outcome that can be next to impossible to anticipate. Like tsunamis, demographic forces hit and then continue pushing relentlessly with tremendous pressure. Demographers, economists, and social scientists are studying the possible effects of population aging with increasing urgency, revealing the development's true potential to change economic, societal, and cultural dynamics substantially.

Few potential solutions to the challenges that demographic developments present exist.

According to projections by the United Nations (New York, New York), at some point in 2016, the collective working-age population of the world's advanced economies will decline for the first time since 1950. Furthermore, this population will shrink by 5% by 2050. Some developing countries such as China and Russia will see a similar demographic development. Christine Lagarde, managing director of the International Monetary Fund (IMF; Washington, DC), recently delivered a speech about the challenges of demographic developments. During the speech, she highlighted that because of "declining fertility rates, populations in some advanced economies did not just grow more slowly; they stagnated, or began to shrink. The same will eventually become true for emerging and developing countries.... In most cases, shrinking and rapid ageing go hand-in-hand. This is a demographic double-whammy that will have major implications for economic growth, financial stability, and the public purse" ("Demographic Change and Economic Well-being: The Role of Fiscal Policy," IMF, 4 March 2016; online).

Because of increasing life expectancy and decreasing birthrates, people older than age 65 will make up a larger and larger percentage of the population in many countries. Credit Suisse Group (Zurich, Switzerland) demographics expert Amlan Roy highlights that in comparison with demographic forces in the past, today's demographic forces are "dramatic and unprecedented" ("The World's New Population Time Bomb: Too Few People," Wall Street Journal, 22 November 2015; online). Dr. Roy points out that the median age in the United States took 80 years to increase by 7 years, reaching age 30 in 1980, but only 34 years to increase an additional 8 years to age 38. Nevertheless, demographic development is not as dramatic in the United States as it is in other countries. According to the United Nations, by 2050, the working-age population will decrease by 28% in Japan and by 23% in Germany and Italy. Although many analysts consider Japan's demographic developments to be more problematic than those of other major economies, varying the metrics in use in demographic analysis can point to serious struggles in other countries as well. According to economic think tank Hamburgisches WeltWirtschaftsInstitut (Hamburg, Germany), Germany has the world's lowest number of births per 1,000 people. At 8.28, Germany's birthrate is even lower than Japan's (8.36). And countries with low birthrates experience negative effects in employment markets, health-care funds, social-security programs, tax income, consumer spending, and many other areas of economic and societal activity.

Few potential solutions to the challenges that demographic developments present exist, and the potential solutions that do exist face implementation and execution issues and may have long-term ramifications. Immigration of young people and people who have a high number of children (who will eventually be of working age) can increase the size of the working-age population. And a rising labor-force-participation rate of women could increase the working population and reduce the nonworking population.

Arguably, immigration has had a large effect on slowing problematic demographic developments in the United States. But many policy makers and various segments of the population oppose immigration. Immigration developments in Europe—particularly in Germany—highlight political issues and problems with logistics, administrative needs, and successive-integration requirements. Immigration to Japan has been minimal because Japan's language and culture are difficult for immigrants to master and because many segments of the population seem to prefer a culturally closed society.

Societies may be able to mediate the effect of demographic developments by increasing labor-force participation. According to the US Bureau of Labor Statistics (US Department of Labor; Washington, DC), the labor-force-participation rate among people age 16 and older (the total working-age population) in the United States declined from 66.6% in 1994 to 62.9% in 2014; however, during the same period, the labor-force-participation rate among people age 55 and older increased from 30.1% to 40% (a development that will see discussion below). In contrast, the labor-force-participation rates among people ages 16 to 24 shrank from 66.4% to 55% and among people ages 25 to 54 from 83.4% to 80.9%. This development is not endemic to the United States. According to the International Labor Organization (ILO; Geneva, Switzerland), an agency of the United Nations, the average youth unemployment rate in 2013 was 13.1%. In the European Union, more than 23% of working-age people younger than age 25 were unemployed in 2013. Increasing labor-force participation among women has proved challenging. According to the US Bureau of Labor, the labor-force-participation rate among US women age 16 and older decreased from 58.8% in 1994 to 57% in 2014 (although the labor-force participation rate among US men age 16 and older dropped from 75.1% to 69.2% during the same period). In Japan, the situation is downright dire: According to the World Bank (Washington, DC), the labor-force-participation rate among women in Japan was not even 50% in 2014. Japan's prime minister has been encouraging labor-force participation among Japanese women and set women's filling 30% of corporate leadership positions by 2020 as a national goal; however, the Japanese government recently dropped the goal from 30% by 2020 to just 7% by 2021, which it now believes is more realistic.

Another possible solution for societies seeking to relieve the financial pressure caused by demographic developments is to encourage people in the workforce to postpone retirement. A recent Wall Street Journal article discusses how people—particularly women—are working later into life than they did in the past. This development could have a negative effect: extending the amount of time necessary for jobs to become available to the next generation of workers. For this reason, "economists are closely studying what happens in the U.S. and abroad as workers stay on the job years past their expected retirement age" ("How Older Women Are Reshaping U.S. Job Market," Wall Street Journal, 22 February 2016; online).

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